15 April 2009

Information in a good ERP system powers inventory reduction and customer-centric action.

Acting like electricity, the information flowing through ERP systems can power inventory reduction and customer-centric action. Mark Webb reports.

Harnessing the information that resides in an enterprise resource planning (ERP) system provides opportunities to optimise resources, focus on customer service and to break into the cost base. Adding operational business intelligence (BI) and collaboration tools targets the workforce’s energy where it’s needed most.

Colin Masson, worldwide director of CRM, ERP and supply chain solution management at Microsoft, says: “You need to scrutinise the business and be able to turn on a dime. On the cost side, you want to look at every aspect of spending. On the sales side, you are looking for opportunities, if you can identify a new segment in the market.” He suggests that BI across the business, including at operational level, can provide the information to adapt to tough economic times. BI needs raw data and can get it from the ERP system.

“The answers are in the ERP system,” agrees Nigel Montgomery, research director at AMR. “But it’s not easy enough to get at the data so bids for business too often rely on guesswork. If you have full information about which customers are making most money, it’s possible to choose where to cut inventory without risking loss of business. Rather than cutting ten per cent across the board, it may be better to cut seven per cent here and 14 per cent there.”

Analysts are suggesting that companies focus on customer service, especially for their most profitable customers, and that they use customer relationship management (CRM) solutions to achieve this.

Montgomery says concentrating on customers works in two ways: keeping the ones you want and weeding out the ones you don’t, who aren’t contributing to the bottom line. He urges companies to use an engagement-centric model so that customer data resides in one place and can be referred to and re-used. His recent research shows that bids for business can be inaccurate by up to 40 per cent. “This is poor even when things are going well, but when times are tough and you can’t afford to make mistakes, it’s not using resources effectively,” Montgomery concludes.

In the current climate, big consolidated ERP rollouts are probably out of the question so Masson argues for a two-tier approach: a backbone for company-wide services but a more modest and flexible business platform. “You still need to see your financial position across the business and to reduce costs by sharing services,” he says. “But what about capabilities in the warehouse and on the manufacturing operations side?” His conclusion is that enterprises need a business platform that can be deployed rapidly and at lower cost, and collect data and give visibility of costs and inventory at a particular site. “It’s going to be more productive for a leaner workforce that will need all the help it can get. In that case you need ERP more than ever,” says Masson.

In the current economic climate, we will make fewer investments and we are looking to employ synergies, educate staff to use more functionality and to generally improve the quality of ERP

Rob Kettler, CRH  There’s very little cost barrier to using ERP. For example, ADA Technology Services offers a range of hosted ‘pay monthly’ options – based on Microsoft Dynamics NAV – for UK businesses wishing to invest in ERP without upfront capital expenditure on either infrastructure or software.

Rob Kettler, director of IT services at CRH in Europe, says: “I want ERP to provide quality management and compliance, including with Sarbanes Oxley. In the current economic climate, we will make fewer investments and we are looking to employ synergies, educate staff to use more functionality and to generally improve the quality of ERP in the business.” CRH is a global building materials company, the biggest multinational in Ireland, with a turnover in excess of US$21bn. Its regional businesses supply the construction trade through wholesalers and it has some retail outlets. In Benelux, for example, it is the biggest DIY supplier.

Having grown through acquisitions, CRH has a variety of ERP systems in different businesses, without any great integration so far. CRH doesn’t have a CIO so IT strategy is discussed amongst colleagues around the world. The company uses both Microsoft Dynamics AX and NAV, usually AX for manufacturing and NAV for merchant trading. Kettler explains: “When choosing ERP, it’s important how it aligns with processes as well as the functionality in the package.”

One of the limitations of Dynamics has been scalability. “We have large companies which have grown larger and we are always saying to Microsoft to improve scalability so that we can use the same system when we grow,” he says, adding that he thinks that Microsoft has succeeded in doing this with the combination of AX and SQL Server.

CRH has approached the scalability issue in different ways. A US company on NAV 2.5 grew from 300 to 1,200 people and moved to a new solution. However, CRH in Switzerland has worked with a partner to optimise its solution using the NAV development environment to support 500 concurrent users with the ability to scale up to 1,000 and maybe higher.

Michael McNamara, CEO of Flextronics, introduced the topic of supply chain at Microsoft’s recent high-tech manufacturing summit, stating that supply chain is more important than ever because companies really have to balance their supply chain costs and their service levels. “The current economy has implications for supply chain costs and the service level to be expected from suppliers,” adds Masson. “To keep on top of this, manufacturers need data more quickly and need to be more agile and adaptable. They need to anticipate opportunities and beat those who don’t have the information to the profitable business.”

“Get operational BI so you understand what’s happening in the factories, what your inventory levels are in the supply chains, as well as your cost to serve customers,” says Masson. “You need raw data for BI to work on so you need ERP that can provide data from all manufacturing sites and all your warehouses.”

Manufacturers’ business challenges in the supply chain include integration with production. ERP handles the orders and creates demand that goes into the manufacturing execution system (MES). “If a manager doesn’t have both ERP and MES on the desktop or doesn’t want to log into two systems, he can use SharePoint to bridge the two and have a simple SharePoint site with Web parts that supply the relevant information – at work or at home,” says Tim Matsell, director of solutions delivery at Ascari.

“Predisys’ very good analysis tools are available in Web parts so, as system integrators, we can drag and drop them into a SharePoint site,” explains Matsell. “It builds things much more quickly and users can tailor their desktops to show the information they need. Users like the ability to manage by exception, and to have the system intelligently sift the information and summarise it in a graphical form.”

SharePoint also plays an important role in the management of intellectual property. “Larger organisations want to get information in one place and SharePoint is ideal for this,” says Matsell. “We also see smaller clients, often a commercial spin-off from university research or similar. It’s mainly R&D, manufacturing in small quantities, collecting data and feeding it back into the line pr ocess to improve the R&D. They either manufacture themselves (Plastic Logic in Dresden for example) or prove the R&D and then license to big manufacturers.”

An IT infrastructure that fosters a collaborative work environment defeats one of ERP’s inherent weaknesses. “ERP software can address process issues around logistics and physical goods, but is limited by being transaction-based and historical, not an environment for forward-thinking innovation,” says John Squire, VP marketing of Dassault Systèmes Enovia.

“To harness the collective intellectual property of the organisation and collaborate on common problems, companies need a collaborative infrastructure and a product lifecycle management (PLM) system that understands the context, complexities and interactive nature of the product development process.”

Once a collaborative innovation environment is established, teams can easily check project metrics (budget, schedule, capacity) against plan, identify blocking issues and reconvene the team or subset of the team needed to address the blockers. Often outside expertise is required and if the environment is agile and flexible, new ad-hoc members are easily added to address specific issues.

“Collaboration around new products – collaborative innovation – is one area where most companies have not yet realised potential gains,” adds Squires. “Every dollar invested reduces costs – both the cost of bringing products to market and direct materials cost – and it increases revenue because the products created are more successful, introduced faster and better positioned to capture market share.”

This article first appeared in the Spring 2009 issue of Prime magazine.

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